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Regulation and Compliance > Federal Regulation > IRS

IRS Releases COBRA Guidance

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The Internal Revenue Service has posted a collection of answers to frequently asked questions about the new health benefits continuation subsidy, and the U.S. Labor Department has put more subsidy information on its Web site.

A provision in the new American Recovery and Reinvestment Act requires the federal government to pay 65% of the premium costs for laid-off workers’ Consolidated Omnibus Budget Reconciliation Act health coverage continuation benefits for up to 9 months.

The subsidy is available to all workers eligible for COBRA continuation benefits who have been let go for economic reasons since Sept. 1, 2008.

The subsidy provision already has taken effect for some workers and March 1 for others, and employers and benefits services vendors have been scrambling to learn how to implement the subsidy program.

In the guidance, the IRS answers questions about how employers can collect reimbursement for the 65% COBRA eligibility through tax returns.

Some of the IRS advice:

- Self-insured employers that are subject to COBRA must participate. Self-insured employers can treat the 65% of the premiums that laid-off employees do not pay as a payment of payroll taxes.

- An employer can collect the subsidy either by offsetting its payroll tax deposits or by claiming the subsidy as an overpayment at the end of the quarter.

- If an employer ends up with a negative tax figure as a result of billing the government for the COBRA subsidy payments, the employer can apply the negative amount to the next return or ask for a refund.

The IRS has posted a COBRA subsidy information Web site here.

The IRS has posted the collection of guidance here.

The Labor Department, which set up a COBRA subsidy Web site section earlier this month, now has posted a “job loss” poster aimed at laid-off employees and other new COBRA subsidy resources here. Inc., Madison, Wis., a benefits administration firm, says it will send ARRA COBRA eligibility notices to all qualified beneficiaries and charge a flat fee of $18 per COBRA subsidy-qualifying event.

Tom Lerche, health care practice leader at the consulting arm of Aon Corp., Chicago, says employers and benefits services vendors should be looking out for a model reporting notice that the Labor Department will be releasing soon, Lerche says.

One compliance challenge is that “the employer may not have the last-known address of” all individuals let go since Sept. 1, 2008, Lerche says.

Another challenge is that “there’s a fair amount of gray area” in the ARRA COBRA subsidy provisions, Lerche says.

Deciding what to do about former employees who may not really be eligible for the COBRA subsidy could be especially challenging, Lerche says.

Rejecting the employees could expose an employer to one set of risks, and accepting the employees could expose the employer to another set of risks, Lerche says.


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